Howlin ‘hopes’ Ireland’s boom and bust cycle is over
The comments come days after Finance Minister Michael Noonan said Ireland needs a different economic model as the recovery begins to broaden, focused more on steady growth akin to the Nordic and Northern European models.
Ahead of a Cabinet meeting yesterday, Mr Howlin said the State had made remarkable progress after having gone through the most difficult period of economic recovery in the history of the state.
“What we’ve done now is to ensure, as a government, that the capacity to provide quality services that are value for money is there into the future and that we have broken I hope, permanently, the cycle of boom and bust,” Mr Howlin said.
But economists argue that despite the best efforts of governments to maintain prudent fiscal management, boom and bust cycles are inevitable, largely because we are at the mercy of global events.
University of Limerick economics lecturer Stephen Kinsella said cycles are a feature of capitalist economies – but it doesn’t mean governments shouldn’t be prudent. “It has been happening for 800 years. They [economies] boom, they bust,” he said.
“Normal boom and bust cycles happen precisely because governments forget that they can’t really deal with these things. They need to run large budget surpluses during boom time because the bust is coming, but no government ever does this.
“The political business cycle is one of the most dangerous things in economics.
“I would imagine that what the minister means is we’re not going to see a return to the Wild West, free-flowing, crazy money asset bubbles. But the economy cycling up and down is a permanent feature of the capitalist system.”
A raft of indicators suggest Ireland’s economic recovery is taking hold, with unemployment dipping to below the eurozone average and the public finances €971m ahead of target.
The country’s services and manufacturing sectors are surging and reaching multi-year highs, while estimates have put Ireland’s economy growing as high as 3pc this year.
Seamus Coffey, economics lecturer with University College Cork, said he believed Ireland wasn’t at the end of the boom and bust cycle.
“If the economy was not going up and down it would be stagnating, there would be no change. We want to generate a position where there is growth and expansion in the economy and there will be periods where that growth is stronger than others. You’re bound to get the pattern of upswings and downswings,” said Mr Coffey.
“The objective of government is to minimise the gap between them,” he said.
Former UK prime minister Gordon Brown, while he was Chancellor of the Exchequer, famously frequently signalled during his 10 years at the Treasury that there would be no return to boom and bust.
In 2007, a year before the global crisis, he said he had made stability a central feature of his economic and business policy.
Mr Coffey said ups and downs are inevitable. “When the [Irish] economy was booming, in retrospect you can look back and say more should have been done to moderate the rate of expansion. But it’s very difficult to do that politically,” he added.
Mr Howlin, meanwhile, would not be drawn on speculation about next month’s Budget.
The minister said that having achieved the base for recovery and a reduction in the unemployed, the government now has the capacity to plan for the future. But he said the Government can’t deliver in one budget.
Last week Mr Noonan said the country’s recovery was not “an act of God” but the result of government decisions which he claimed eurozone giants France and Italy didn’t take, and are now paying for.
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